Year End Tax Tips 2021
With 30 June fast approaching, it is now a good time to consider a few of the things below that will have an impact on your compliance and tax position for the year.
If you are an Individual Taxpayer:
1. Personal Tax Rates:
The personal tax rates remain as previously announced for the 2020-21 year as follows:
0 to $18,200 Nil
$18,201 to $45,000 19 cents for each $1 over $18,200
$45,001 to $120,000 $5,092 plus 32.5 cents for each $1 over $45,000
$120,001 to $180,000 $29,467 plus 37 cents for each $1 over $120,000
$180,001 and over $51,667 plus 45 cents for each $1 over $180,000
2. Low- and Middle-Income Tax Offset
The low- and middle-income tax offset of up to $1,080 which was due to cease on 30 June 2021, will be extended until 30 June 2022.
3. Consider additional Super contribution up to the cap.
Both employees and self-employed individuals can claim a tax deduction annually to a maximum of $25,000 for personal superannuation contributions. If the super contributions made by your employer on your behalf is under the $25,000 limit, cashflow permitting, you can make additional contributions up to the cap and claim the deduction for FY21. To be able to claim a deduction, your super fund should have physically received the contribution by 30 June 2021 and the individual has provided their superannuation fund with a notice of intention to claim.
4. Work related expenses
Ensure you keep a record of all the work-related expenses so you do not miss out on deductions but please don’t buy any deductibles that you don’t need.
A common EOFY strategy is to make some last-minute work expenses in June, so you can claim them as tax deductions in July. As good as it may sound, but it also means spending money when you really don’t need to, which is rarely a sensible plan.
5. Motor Vehicle Logbooks
Make sure your motor vehicle logbooks or work-related travel diary is up to date to substantiate any work-related expense deductions. If you claim a tax deduction for work related motor vehicle expenses, you should note your odometer records at 30 June each year so that you can calculate the kilometres travelled. Maintaining a logbook of work-related use of your vehicle will usually maximise the tax deduction you can claim. If your current logbook is 5 years old you will need a new one for a continuous 12-week period.
6. Consider Income Protection Insurance
Investing in income protection not only provides peace of mind that your family is taken care of should anything happen to you, but you can also claim it as a tax deduction.
7. Working from home
In response to COVID-19, many people have been working from home for an extended period. Until 30 June 2021, you can claim a deduction of 80 cents for each hour you work from home due to COVID-19, as a representation of all additional deductible running expenses as a result of working from home. However, you must be working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls.
There are two other alternative methods for calculating your deductible running expenses:
- 52 cents per hour to cover certain running costs, plus calculated work-related portion for others.
- Actual work-related portion, calculated for all running costs
For Businesses
1. New Company Tax Rate
The 30 June 2021 tax rate for companies with turnover of less than $50m is 26%. For these companies, any dividends paid during the year and before 30 June 2021 can be franked to 26%.
2. Perform Stocktake – Write off obsolete stock
Review your stock valuation and write-off any stock that is damaged or obsolete. Complete a stocktake and remember that stock can be valued at the lower of cost or net realisable value.
3. All payroll to be processed and filed with STP
All employers are now required to run their payroll and pay their employees through accounting and payroll software that is Single Touch Payroll (STP) ready.
4. Pay June Quarter super by 30 June
In order for small business owners to claim the tax deduction on super contributions made on behalf of employees, the super has to be paid before 30 June.
5. Write-off any bad debts
Review your debtors and write off any unrecoverable debts. These debts will come off your income in the year in which you write them off, regardless of the year you invoiced them.
6. Prepay expenses if cashflow permits.
Prepaying some of your 2021-22 expenses (such as your rent, insurance or subscriptions to professional associations) in the 2020-21 financial year. Up to 12 months of the following year’s expenses can be deducted in the current tax year.
7. Bring forward planned maintenance if profit/cashflow allows.
If your business is on track to make a profit this year and you have adequate cash balance, you can bring forward any planned maintenance that you were intending to do in later income years to claim the deduction this year.
8. Defer/Bring forward sale of assets to balance profit/loss.
Depending on how you are tracking to make a profit/loss this year, you can bring forward sales of assets to balance your profit or loss.
9. Instant asset write-off
Businesses with annual turnover of less than $5 billion can claim an immediate deduction for the full uncapped cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use where the following requirements are satisfied:
- The asset was acquired from 7 October 2020.
- The asset was first used or installed ready for use by 30 June 2023.
- The asset is a new depreciable asset or is the cost of an improvement to an existing
eligible asset, unless the taxpayer is a small or medium sized business (i.e turnover less than $50 million), in which case the asset can be second-hand.
10. Manage loans to directors
Any payments, loans or debts forgiven from private companies to shareholders and their associates could be deemed to be an unfranked dividend. Ensure that such loans are either repaid or documented and made subject to minimum interest and repayment terms before the lodgement day of the company / trust’s tax return. Ensure that interest is charged, and minimum repayments are made before 30 June in relation to prior year loans.
11. Taxable Payments Annual Report (TPAR)
Businesses providing building & construction, cleaning, courier, road freight, IT and security need to lodge TPAR statements by 28 August each year to advise the ATO about payment made to contractors for providing services. It is a great time now to ensure you have the details of the contractors such as their ABN, name and address and the gross amount you have paid them for the financial year.
12. Bonuses
Bonuses are only deductible when they are actually incurred i.e. at 30 June the business must be committed to paying them and they are not subject to any discretion.
13. Trust Resolution
Prior to 30 June every year, the trustees of discretionary trusts are required to make and document their resolutions on how the income from the trust is distributed to its beneficiaries. If a valid resolution isn’t executed by this date, any default beneficiaries become entitled to the trust’s income, and are subject to tax. For any income that is derived, but not distributed by the trust, the trust will be assessed at the highest marginal tax rate on this income.
14.Business Health Checks
The end of the financial year is a good time to review how your business is performing and possible areas for improvement. Good accountants look at both short-term and long-term business and tax planning. Short-term planning looks at what you can do before 30 June to minimise your tax this financial year. Long-term tax planning looks at how you can utilise your business structure to minimise tax, and the type of investments you can make to minimise tax over the long term.
Please feel free to contact your trusted advisors at Vivid Partners should you want to know more about these or need assistance in putting any of these measures in place.
Vivid Partners
08 6270 2876
Please note that the information provided above is general only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information provided above you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.